MARKET PLACE; Wall St. Likes Family's Simplified Cablevision Bid

By GERALDINE FABRIKANT and KEN BELSON

Published: October 10, 2006

This time it just might work.

The Dolan family's offer to buy out the Cablevision Systems Corporation for $19.2 billion has a much better chance of succeeding than did another bid from the family 16 months ago, analysts and investors say.

On news of the offer yesterday, Cablevision's stock shot up $2.57, or 10.7 percent, to $26.42, near the Dolan family's offer of $27 a share. About 19.9 million shares changed hands yesterday, about nine times the daily average.

Many analysts and investors reacted favorably to the offer, which they said is simpler than the first bid Cablevision's founder, Charles F. Dolan, made last year; that offer was rejected. At that time, he planned to spin off the company's cable networks and sports teams, the Knicks and the Rangers.

The Dolan family declined to be interviewed yesterday. They join a growing list of families that are trying to take private companies that they control so they can avoid scrutiny from regulators and investors. Nearly two years ago, Cox Enterprises spent $8.5 billion to take its cable subsidiary, Cox Communications, private.

Cablevision, now the subject of a government investigation over the timing of stock options -- including an option grant to an executive who had died -- may be particularly eager to avoid additional attention.

Whatever the motivation of Charles and James L. Dolan, his son who is the company's chief executive, many analysts agree Cablevision is one of the best-run cable providers in the country. The company, with 3.1 million basic cable subscribers, generates a lot of cash, which would be used to pay down debt issued to finance the repurchase of the company's outstanding shares.

The company has the industry's highest percentage of customers who subscribe to digital television plans, broadband lines and Internet telephone service. About 70 percent of its customers, for instance, subscribe to a digital video plan, about 20 percentage points higher than at Time Warner Cable.

Over all, revenue from cable operations jumped to $1 billion in the second quarter, 17.9 percent more than in the period the previous year.

''Since the last offer was made, Cablevision has shown that these gains are not a fluke, and they are gaining momentum,'' said Tuna Amobi, an industry analyst at Standard & Poor's.

Cablevision has aggressively courted customers with an introductory price of $89 for a bundle of digital cable television, high-speed Internet access and phone service. More than half the company's new customers have signed up for the deal. Once the offer runs out after a year, the price rises to $115, a big reason Cablevision customers spend more a month on average than do its competitors, analysts said.

But Cablevision faces stiff competition. Its customers are in and around New York, where Verizon is building a next-generation fiber optic network that allows it to sell television to consumers on Long Island, in Westchester County and other areas where Cablevision is the main cable provider.

Cablevision also does not have its own wireless offering, though it does resell Sprint phones. Comcast, Time Warner Cable and others, by contrast, have formed a partnership with Sprint to develop cellular handsets that dovetail with broadband and television connections at home.

By taking the company private, Cablevision would presumably be able to invest in these products without having to worry about the reaction from investors about the cost.

To pay for the deal, Cablevision will have to borrow an additional $6.1 billion to buy out its public shareholders. Those loans would bring the company's total debt to $17.3 billion, but Cablevision is expected to generate about $2.1 billion in cash flow next year. That would put the company's debt ratio at about eight times cash flow, which is high by industry standards. But that level of debt would not require Cablevision to sell assets, something the Dolan family said it had no plans to do.

Concerned that the plan to take Cablevision private could put additional stress on the company's balance sheet, Fitch Ratings yesterday put Cablevision's debt on watch for a possible downgrade by two notches from B+.

Compared with the Dolans' previous offer, their higher bid and simpler deal are an effort to satisfy objections to the last offer by the special committee. Two members of the committee, Thomas Reifenheiser and John R. Ryan, a retired vice admiral who is chancellor of the State University of New York, concluded that the offer was too complex and the price not high enough. They were named last night to examine the new offers as well. Even if the family wanted to, trying to spin off the cable networks now could prove difficult, because the outlook for the cable programming group is less upbeat than it has been in the past.

Cable networks are facing growing competition, from one another and from a deluge of video, often free, that is now being offered over the Internet. The days of cable network revenue growing at double-digit rates appear to be over, analysts said.

In the last quarter, for example, revenue at Cablevision's three major networks -- AMC, IFC and WE -- grew 7.2 percent while operating income increased just 2 percent.

While the three channels mostly have long-term contracts with cable operators that assure them fixed distribution fees, their longer-term outlook is less certain, some analysts say.

In a recent report, Craig Moffett, a cable analyst at Sanford C. Bernstein, said Cablevision's movie channel, AMC, was particularly exposed, because it was ''increasingly available through alternative distribution and Cablevision has little negotiating leverage to protect its carriage.''

Photos: James L. Dolan, chief executive of Cablevision, hopes to buy out the public shareholders of his company's cable television empire. (Photo by Patrick Andrade for The New York Times); Charles F. Dolan is Cablevision's founder. (Photo by Peter Foley/Bloomberg News)